The Reserve Bank of India Deputy Governor Swaminathan has highlighted the growing cybersecurity and operational risks faced by urban co-operative banks, urging heightened oversight of third-party dependencies in an increasingly digital banking landscape.
Urban co-operative banks are facing a risk landscape that is no longer defined by their branch footprint or balance-sheet size, Reserve Bank of India Deputy Governor Swaminathan J said on August 7, warning that digital dependence has widened the range of threats they must manage.
Swaminathan said smaller lenders increasingly rely on external vendors for core banking systems, payment applications and data centres, which makes them more efficient but also shifts critical functions beyond the bank’s walls. He argued that boards and senior executives must understand exactly which parts of their operations sit with third-party providers, and what would happen if a key supplier went offline for even a few hours.
The deputy governor said outsourcing does not dilute a bank’s responsibility for risk management. In his remarks, he stressed that service providers may run systems, but the bank remains accountable for safeguards, continuity planning and oversight. He also said cyber attacks and digital fraud do not discriminate by institution size, and a weakness in one widely used platform can affect many banks at once.
His comments echo broader warnings from the RBI about technology-driven vulnerabilities in the financial system. In earlier remarks reported by Business Standard and other outlets, Swaminathan has said the rise of digital platforms, algorithmic decision-making and embedded finance can spread risks from a single institution to the wider system if governance does not keep pace. He has also urged lenders and supervisors to move away from periodic compliance checks and towards continuous monitoring of operational resilience.
For the UCB sector, which includes more than 1,400 institutions, Swaminathan pointed to collective solutions as a way to overcome scale constraints. He said shared infrastructure and sector-wide arrangements, including the National Urban Co-operative Finance and Development Corporation, could help banks build capabilities that would be costly to develop alone. In his view, the challenge for smaller lenders is not only to adopt technology, but to ensure that dependence on outside systems does not weaken control over their own operations.
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